Home BancShares Inc. of Conway on Tuesday announced the signing of a definitive agreement worth $280 million to acquire Liberty Bancshares Inc. of Jonesboro, the largest in-state bank transaction in Arkansas history.
Under the terms of the agreement, approximately 400 shareholders of Liberty will receive $250 million of Home BancShares common stock plus $30 million in cash. Wallace Fowler, chairman and CEO of Liberty Bancshares, said his family owned slightly less than 30 percent of the stock.
The price represents a multiple of 1.06 times actual shareholder equity and about 1.6 times book value when intangibles like goodwill are included. John Allison, chairman of Home BancShares, called the deal "extremely accretive" for Home BancShares shareholders, and he told stock analysts in a webcast conference call that the deal should pay for itself in 18 months or less.
The acquisition is expected to close late in the third quarter or early in the fourth quarter of 2013 and is subject to Home and Liberty shareholder approval, regulatory approval, and other conditions set forth in the merger agreement. The combination represents a merger of two of the largest banking franchises in Arkansas and would create the second-largest bank headquartered in the state. Only Arvest Bank of Fayetteville, with total assets of $14.2 billion, will be larger.
“The merger of two similarly sized Arkansas based companies with comparable cultures and history with only two overlapping markets creates a prestigious banking franchise in Arkansas," said Chairman of Home Bancshares John Allison in a released statement. “Wallace and I have been friends for a very long time. The addition of Liberty is truly a game-changer for Home BancShares.”
The announcement confirming Arkansas Business' earlier reporting was made Tuesday afternoon at the Little Rock Regional Chamber of Commerce in downtown Little Rock. Gov. Mike Beebe, a college fraternity brother of Allison and longtime friend of Fowler, attended and praised the parties to the deal and the health of Arkansas' community banks.
Liberty Bancshares, a private company and the holding company of Liberty Bank of Arkansas, has total assets of more than $2.8 billion and equity of $369 million as of March 31, a figure that includes such things as preferred stock and federal capital infusion Small Business Lending Fund. The bank reported net income of $23.3 million during 2012. Wallace Fowler of Jonesboro is chairman, CEO and leading shareholder of Liberty Bancshares.
Home BancShares, a public company (Nasdaq:HOMB) and the holding company for Centennial Bank of Conway, has total assets of more than $4.2 billion. Centennial reported net income of $65.9 million during 2012. Home BancShares, a major player in FDIC-assisted acquisitions, is led by Chairman John Allison and CEO Randy Sims.
Allison, who grew up in Jonesboro, and Fowler served together on the board of First Commercial Corp. board of director before its sale to Regions Financial Corp. in 1998. Fowler, 79, who has sold two banks previously, told Arkansas Business the he would essentially retire, although he and his son Mark will join the Home BancShares board of directors.
Liberty recorded a profit of $6.1 million during the first quarter of 2013. It has a staff of 632 and operates a branch network of 42 full-service locations in Arkansas. Centennial operates a full-service branch network with 51 locations in Florida, 46 locations in Arkansas and seven in Alabama with a companywide staff of 895. The bank reported net income of $18.1 million during the first quarter.
The geography of the deal makes sense: Centennial does business in nine Arkansas counties, mainly in central Arkansas, while Liberty Bank works in 15 counties in north Arkansas. According to FDIC data, the two banks overlap only in Morrilton, where each has a single branch, and in Searcy, where Liberty has three branches and Centennial has two.
("It should be interesting," said Reynie Rutledge, CEO of First Security Bank of Searcy, who praised the "good bankers" that both Liberty and Centennial have working in Searcy.)
Allison told analysts that Centennial didn't anticipate "a slash and burn" of employees in the Jonesboro headquarters, although he suggested that the staff would gradually be reduced - preferably through attrition. He also said that Centennial had marked down the value of Liberty's loan portfolio by "a tick over 5," and CEO Randy Sims told Arkansas Business that Liberty's asset quality "came back better than we expected."
Foreclosed property on Liberty's books - described mainly as "two or three large tracts in northwest Arkansas," a subdivision near the Memphis suburb of Olive Branch, Miss., and another parcel in Dallas - was written down by more than 30 percent.
Allison also told analysts that the big bite of Liberty would likely put Centennial "in timeout" with respect to additional acquisitions, possibly even when it comes to possible FDIC-assisted deals in Florida, where Home BancShares has made hay over the past few years.
"I've been after this deal for 10 years, and it got better and better for us," Allison said. Earlier attempts to acquire Liberty had not come to fruition, he said, but "I had plenty of patience because it is the right deal for Home BancShares."
Centennial Bank is currently the third-largest bank chartered in Arkansas as ranked by assets, and Liberty is the fifth-largest. The combination will create a bank with $7 billion in assets — half the size of Arvest Bank of Fayetteville but easily overtaking the previous No. 2, First Security Bank of Searcy, which had assets of $4.34 billion at March 31.
Bank of the Ozarks (Nasdaq: OZRK), the publicly traded Little Rock concern, will remain at No. 4 with $3.95 billion in assets, while Simmons First National Bank of Pine Bluff (Nasdaq: SFNC) will move into the top five with assets just above $2 billion. (Simmons’ holding company, Simmons First National Corp., has seven other charters and total assets of $3.61 billion.)